>> is that a good summary? >> that is an excellent summary, and i appreciate your trying to help me explain this, because it is an extraordinarily complex situation where, you know, the effort -- >> i don't think that it is overly complex. i think there's a difference in

outlook here on whether you have certain authority. and i think it's clear that the 1997 law in these court cases that compound were exempted and are not manufactured. so the congress has a responsibility now to act and clarify. there's got to be additional oversight of the states. if they're going to drop the ball and they're not going to provide proper oversight, then it's time for the feds to step in and give fda the tools it needs to prevent these tragedies from ever happening again. thank you. i yield back. >> i don't know if i'm allowed to make a comment, but i think, you know, speaking the complexity of the issue and the changing involving industry overlaid on top of a fragmented and ambiguous legal framework, it is important to understand that this notion of sort of black and white compound or or

manufacturer, is trying to fit a square peg into a round hole, and, in fact, you know, if the laws examined it isn't really adequately defined, but there's this area of outsourcing pharmacies that is increasingly important to the medical practice. and if we were to define all of those pharmacies and hospitals now use, the used to make coming it used to be that a hospital would have potassium chloride to the iv bag in their local pharmacy or on the floor and give it to the big patient. now both because of volume, concerns are making shirts made under the best possible practice, that's outsourced to a pharmacy. they're making a product in larger volume and often not

making it with patient prescription in hand, yet it is clearly serving and a portal medical need. and if we were to treat them as drug manufacturers, that would be simply impossible. they would have to submit an application, a formal application to fda for review and action. they would have to pay fees associated with that as well. they would have to be subject to good manufacturing practice. i think we want to work together to make sure that we have a law that is clearly defines critical issues and authorities that enables important patient needs to be addressed, but clarifies the different roles and responsibilities and puts in place some critical authorities that are currently missing. >> i'm going to interrupt you in the interest of time. dr. gingrey has been waiting patiently. you're recognized for five minutes. >> mr. chairman, thank you very

much. and, of course, extremely and interesting hearing. tragic in so many ways, lives lost and the number of cases of meningitis as a result of this bad actor. dr. hamburg, dr. smith, pediatricians both, we appreciate you being here, and some of the questioning, line of questioning from both sides of the dies, both republicans and democrats have been pretty tough, but they have to be because if we are going to change the law, if we're going to rewrite the federal food drug cosmetic act, particularly regard to section 503 a, the conflicting court decisions, then we have to get this right. and i have some great concerns we might not get it right in regard to overreacting in regulating compounding

pharmacies. every member of the house of representatives have drugstores, chain drug stores, a lot of corner druggists that due compounding were a certain product is needed by a patient but maybe the manufactured product is in the base or something they are allergic to. so, therefore, the local pharmacist has to reconstitute of that drug, not manufactured the drug. the drug is manufactured, and just put it in a different way of getting it to the nation. it might even be in a pallet form. thank hormone replacement form in some cases. or a cream or vanishing cream or something the patient does not wish to. so if we get to the point in the line of questioning that dr. hamburg received from our

long standing member americans, mr. dingell, about compounding pharmacies. that worried me a little bit that we might overreact and get to the point that we're not getting at the problem. it seems to me that this particular company, this new england compounding company was an unusual bad actor. unusually egregious, and i would be very surprised if there are not multiple lawsuits in the final analysis of folks serving some jail time. you know, again, i can't understand why, dr. smith, i will direct this to you, i realize you've only been in this position for a few months, and by all appearances and from what i read you're doing a commendable job. by gosh, this companies going back to 1998, and a bright light

has been shining on it, at least since 2002. and there has to be some connection between members of this massachusetts pharmacy board, i guess appointed by the governor, i don't know for what period of time, and i think we've got some evidence there was some cross polarization were maybe even one of these individuals served on the board of the new england compounding center, one of the sister companies. you know, it's just unbelievable that that's, the general public is so disgusted with washington. i mean, we are reading about what's going on now the highest level of our military. this situation where, in the 21st century we've got a food

and drug administration. with state pharmacy boards. something like this could happen. it's like it's almost beyond belief. but it makes me think back to what the president reagan said in reference to the russians and the nuclear stockpile, trust but verify. and that's a responsibility of this committee, this oversight and investigations subcommittee of energy and commerce. trust but verify. and we are not very trusting today, as you can do from our line of questioning, and we shouldn't be. that judge, his widow in the previous panel, talked about his contribution to society in the great state of tennessee, and his life was lost but he was just one of how many. we're talking about far too many people. so i would just come in my last second, ask you, dr. hamburg and

maybe dr. smith could come as well, do you think that the fda needs, because of this, to all of a sudden have us change the law so that you, and the fda or whoever succeeds you, as this broad authority over these little compounding pharmacies all across the country who are doing the right thing, not manufacturing drugs, just trying to provide a service, indeed based upon a just prescription and has to be written. this company was an absolute crooked operation, and they killed people, but i don't think anybody here should get confused between them and the typical compounding pharmacist at our corner drugstores all across our districts. >> well, i think we need a tiered approach, and that we will is what we are proposing. in terms of the need for new legislation. i think i cleared the

traditional compounder, working locally, is most appropriate overseen by the state. but this isn't sadly an isolated incident. this is the worst and most tragic, and it should be the last wakeup call to bless. but over a period now of almost two decades there've been problems of compounding facilities, compounding pharmacies, and i think it will flex this gap and regulatory oversight here and the fact that we really need a strong, clear and appropriate legislation. we cannot have a crazy quilt where different parts of the country subject to different legal frameworks or oversight. we need a tiered system that recognizes the role of judicial compounding at the role of the states. nontraditional company which

represents high risk then there should be federal standards, and we need to look at a set of statutorily based criteria. that in some combination would put people into this category, the type of product or activity, whether it is still processing, the amount of products being made, whether it's in interstate commerce, whether it's going directly to the end-user or to a third party, and the nature of the compounding. then there's something that simply shouldn't be compounded, that should be manufactured by drug manufacturers, subject to the full force of fda authority, and that would include certain things that you're well for me with, biologics, and other kinds of products. that because of the nature of the kind of manufacturing, they really should be made in

accordance with good manufacturing practices. they should be subject to the fda preapproval review for safety efficacy and quality manufactured. >> i've gone way beyond my time and i really appreciate the chairman's indulgence. the a gentleman from texas. >> thank you, mr. chairman. i think the questions and testimony, the probably have that necc tragedy lay bare their predatory gap we have between traditional and full-scale drug manufacturing. there's no debate that we want the federal government to license individual pharmacist. it's a state responsibility. now is the debate about what fda should oversee large-scale manufacturing of drugs which is a thing on a bipartisan basis what we afford. there've in overwhelming numbers signals the about necc, which is not your average neighborhood pharmacy. commissioner smith, how major mistakes did necc sell their

products to? >> i'm not sure about all other products but -- >> but they did sell into large states. did they sell into massachusetts? >> yes, they did. 23 i believe. >> but did they sell their products into the massachusetts market? >> yes. >> how many states did send contaminated injections that led to the outbreak? >> that was the 23. they may sell into more but that was the 23. >> necc was not new to this nationwide shipping. hadn't been operating throughout the country for about a decade? >> that's correct. >> the massachusetts board of pharmacy and been getting complaints and troubling signs of states around the country for that whole period of time. the board received complaints from idaho and new york that necc was inappropriate soliciting business. the board received a report from south dakota pharmacists that necc by sending blind forms for dosage size that you never use on one person. the board received at first

report, necc products in florida and new york, and the board received complaints from pharmacist in texas and iowa how necc was soliciting filling prescriptions. the board also received reports of cease-and-desist orders for necc from colorado. dr. smith, red flags came from across the country and i could go that list of states again. wasn't it obvious that necc was operating on such a large scale that it presented a nationwide, of the sort that wanted greater involvement by the federal government? >> yes. >> did abort a massachusetts request any assistance from the fda? >> i'm not aware of any specific request. however, there were certainly during this most recent outbreak we have worked together. >> but they been doing this for 10 years and y'all have records of the. did you sure those records with the fda, the complaints? >> i'm not aware. i cannot recall and i would have to look back. >> i think that's our problem,

and i've been on the committee since 97. we never included federal regulation or compounding pharmacy because, frankly, that's licensing and that's a state. but when they're in a manufacturing situation, which they are, then it means they should've been covered by federal law. and i know it's complicated and it's hard for doctor to explain legal, it's hard for lawyers to explain some of the legal theories courts do but that's the decision i think congress needs to me. i think we have a bipartisan agreement. this subcommittee does not do legislation but believing, health subcommittee can. i do that if we can do by the end of the term, and i know our chairman is doctor and even our ranking member, but i would hope a good look at a very quick piece of legislation, which have a hearing on and to correct this problem. if you're a compounding manufacture in texas and some in interstate commerce, it ought to be federal law covering it. i don't expect our local pharmacy boards in texas, they go around and inspect by pharmacists to whether they be

in the large pharmacies like walgreens or cbs. or our neighborhood pharmacist. but they don't expect you to show the compounding manufacturers, and that's where federal law needs to come. i would be glad to yield to my colleague, and i hope that we would see the movement on the bill on a bipartisan is basis speak let me ask you this. when you try to inspect compounded drugs, you get sued by the compounding industry? >> we have been sued numerous occasions as we, anyway been challenge in terms of our authority. >> when you, when you try to regulate compounded drugs as new drugs, you get sued by the compounding -- >> we do not have the authority there is very clear to the expectations on drug manufacturers in terms of what they need to do to comply with fda law. >> when you request documents from compounding firms, do they

sue to block you from getting -- >> we often have to go to the courts and get warrants in order to get the materials that we need. we do not have the full authority that we need to review documents. >> when you're asking a drug company, merck, when you request document some then, do they go to court? >> no. we have much clear authorities over drug manufacturers speak when you're inspecting merck, judy question your authority to inspect? >> they do not. >> and that's why she needs authority. that's why the fda needs authority because it's clear that drug companies except the law speak as much as i grit my colleague from massachusetts, i yield back my time but uphold our committee hearing has done what we need to do and can encourage -- >> will the gentleman -- i think his comments were very appropriate and bipartisan. but i appreciate that. do you think in your heart of hearts that the energy and commerce health subcommittee

should provide more regulation and a three to the fda before the end of the your? >> i think we to respond to the tragedy that happened, and i think we don't to the families. but also to probably thousands of people who may not have been subject to a death in the family but an illness because of the practices of this particular compounding company. that happened to be in massachusetts. but it could've been in any other state. but massachusetts did have morning. there were complaints for 10 years about her, and i would hope that would have a better interstate sharing between the states and the federal regular toward agents even though it may not have the authority, but somehow intended to could've come to us and maybe we -- >> the gentleman from virginia, mr. griffith, is recognized for five minutes. >> thank you, mr. chairman. i appreciated. obviously, this is her frustrating. i would like to know what kind of due diligence the fda has the authority to do, do you send out

letters to dr. singh where are you getting your compound medicines from our word detector supplies from? and the reason i ask that, the same thing for hospitals or clinics or other medical providers, because this is not what we think of as compounding. this was manufacturing. in my small area, which is, it overlaps the roanoke valley, the new river valleys, we have compiled the rest of apartment 1415 patients who were advised they some press reports. are notified they could've been exposed to fungal meningitis during tainted steroid injections. and we have a hospital that didn't fortunately use it but had it sitting on the shelf. we had, that was -- we had the insight imaging and roanoke and the new river valley.

we had other clinics, including lewis gale medical center in salem, all of which had these products. and when you have that many come by, i don't represent new york city. this is a fairly compared to other parts of the country, fairly small area, and with that 1415 people who have to worry about whether not there are going to get the disease to grant more than that and with already contracted it, roughly 50 confirmed cases in the area, three of those come something for her, across the line in west virginia but not that far from our medical centers. and when you got that many folks affected and we're not getting with a company which is what it's been frustrated all day for think when you keep going, our jurisdiction is not clear. these folks are manufacturing the what due diligence did you all take to find this out? these are all pretty big

operations. and if you just sent them a letter sent hey, who's providing you with various products, you know, i think they would've complied and and you would've had, you know, you didn't, fda, not you, did some work back under the bush administration, but then it appears that the ball was dropped and that there, it appears there was no due diligence going on, but you all were missing who's providing you with this stuff. because we got colorado, tennessee involved, who make complaints in advance. and with the 1415 people who either live in my district or bob goodlatte's predominantly. you know, somebody was paying attention. these are not our compounding, this is not your small compounding pharmacy. these were manufactures and i recognize they were violating the laws, but it's her frustrating when you come in and take our authority wasn't clear. what were you doing, what are you doing now to find out if there is someone else out there

was manufacturing under the claim that they are not -- you know speeded your question speaks directly to why we do need legislation and new authorities. compounding pharmacies are not require -- >> hang on. i'm not regard about -- i'm telling you that from the evidence i've heard today, it appears these were manufactures. so what do you want to define it is if somebody is? that's what i think we have come at you keep going back to compounding as everybody is getting frustrated with you. 1415 cases, you know, a number of states away is not a compound. that's a manufacturers. >> i think we really do need to clarify that in legislation. >> i already heard that the clinical to another question because of limited time like everybody else does. there was marketing going on in going to switch to you, dr. smith. there was marketing going on. they were apparently aggressively marketing both

pricing, discounts to the clinics, you're aware that, at this point? >> well, yes, those were some of the claims are the issues that have come up before. >> okay. and i guess if they are aggressively marketing to multiple states, are there any memos, i know you weren't there and i appreciate you coming for to look, mistakes were made, did anybody think, wait a minute, this is not traditional company, this is a manufacturer, we need to turn the soviet fda and let them deal with them as manufactures? not within 50 not one to accept some responsibility day at all, that appears to you what happened is that somebody was violating the law and polling a fraud, claiming their compounds when they were, in fact, manufactured to did it ever come up in any of the notes you have seemed? >> it hasn't come up, or we haven't found that level of conversation. what has been clear and remains clear is that messages islam requires one prescription for

patients. and so the issue that has come up as you describe is clearly you can't do that and still do one prescription per patient. one of the things we've done since his all has come to light is remind all pharmacies in massachusetts about that, remind hospitals that if you're getting product that needs to be one prescription per patient for exactly the reason that we've been discussing. >> i appreciate that. mr. chairman, i know my time is up and appreciate this hearing being held. earlier today you said or someone said there would be more hearings but i certainly hope the r. and l. that we can get some answers and why and what we need to do not on the compounding side by to make sure the fda has authority because apparently they don't get to just check and see the people out there who are committing fraud by claiming to be a compound when they are, in fact, manufacturers spent i thank the gentleman. i say to all members, we're going to go for a second run. i talked to the ranking member, she has agreed.

it was not necessary be the full five minutes but if the panel will be patient with us, there is no votes today so will you have this unique opportunity if you have a second round. i want to continue with a little bit with what mr. griffith indicated he sort of indicated going forward today, have you come up with procedures and interpretations so that the manufactures that are doing the same thing as necc, that you can stop in? and it didn't seem you give a clear answer. what assurance do we have that the fda is going to prevent the some happening today? because we might not get legislation. this is a lame duck session, but the republican-controlled house, the democrats the senate it's going to be very difficult to get legislation through normally even though this is a very serious problem and think we're all bipartisan on the sometimes

between the top and don't let it takes what i think mr. griffith was touch about what can get the public, the other necc's out there that you'll stop in? >> i do want to underscore that i believe that we need legislation -- >> so you cannot -- unless you more or less -- >> in the inward are working very hard, working with our colleagues. i mentioned we are actively engaging with the states in order to both provide our best possible information about best practices -- >> do you feel confident you could stop in other necc with the jurisdiction and the understanding you have now, could you stop another necc u.s. manufacturing drugs? could you stop and a? >> sadly, necc was not the person it will not be the last and don't work together to clarify and strengthen the laws that surround -- >> dr. smith, you indicated in your opening statement that because of what happened, people

have been fired and suspended, is that true? >> direct speak you've also implement new registrations and oversight interpretation cejka prevent this and happen again, is that correct? >> yes. >> okay. dr. hamburg, have you fired or suspended anybody at the fda because of this tragedy? >> no. >> okay. have you gone through introspectively, look at the agency and said these are the regulations, these are things we need to do to prevent another necc, have you done this because we have done. we been working very hard to identify one of the authorities that we need to be able to protect the american people, and to help to ensure that they get the quality drugs they deserve. with a necc incident is your position today that this could've been prevented by the massachusetts department of public health? yes or no? >> i believe that we need a stronger -- >> no. in your opinion speed different

actions might have been taken with necc -- >> the problem is your same -- >> i wish that were so, but i think we have to look at the record that -- >> did somebody tell you to filibuster us? >> i apologize but -- >> the question is -- >> it's an important issue. >> you did not have the authority, you keep saying you don't have the authority to do it. did you think that doctor smith's agency should have stopped it? just yes or no? if you don't know so you don't know. >> well, i, i think that clearly massachusetts is working very hard -- >> so you think they could've stopped it and you didn't have to stop at? >> they were unsuccessful and it was coming in, tragic. we worked hard with them to limit the acute outbreak and we want to work with you -- >> i have two more questions for you. is your position today that the necc was not a manufacturing

pharmacy? and that you're no jurisdiction over its business activities? is that your position today, yes or no? >> necc is register at his -- >> i'm talking about necc. today, in your opinion, your opinion, this is the crux of the hearing now, in your position today that the necc was at a manufacturing pharmacy and get no jurisdiction over its business activities, is that your position today, yes or no? >> is the subject of an ongoing investigation. >> you have been telling us all day today you have no jurisdiction. >> i cannot characterize that while there is a criminal underway. >> is a your position today the fda could not a prevented this tragedy because you did not have jurisdiction? is that which were telling me to a? >> i, you know, i'm sorry come we can speculate -- >> you are in charge of the fda. you're the chief honcho. i'm asking you, basically could you prevented this tragedy, and

you think you can't -- >> you know, it's very hard to know if anyone action that we might've taken could have stopped this terrible tragedy. i wish that i could identify what that would be. what i can speak fda did nothing wrong, in your opinion? >> no. what i'm -- >> in 2002 when inspected, found other problems and in 2006 when he wrote the letter and said would've wished to do all of that is too murky for you and you don't -- >> no, but i think, and it, this is not a forum unfortunate that enables us to speak -- >> welcome you been speaking pretty well. >> i think that, no, what we really want to do together is make sure that this kind of event speeded oh, we all understand. but the question is we are trying to say, where china is and how this could be prevented and you're saying you don't know how could've been prevented by

the fda. you're not even come you haven't fired into the, haven't anybody. it's not even close to the initiated anything. so i think we are legal with the impression is that thank goodness dr. smith stepped up to the plate and did something and we are just a little unsure what you're going to do. in fact, we are waiting as mr. dingell said, we are waiting for all this information from your agency and we didn't even get assurance when you're asked by the chairman and a doctor dingell, mr. dingell that we're going to get all this information. i'm telling you there's so much out whether your agency has not given us. you've only been there a short time, i appreciate that. >> we will provide which have requested spent okay, my time is expired. >> i'm pulling myself together, i'm going to us in question.

dr. hamburg, i think you'd agree with me that when 2002-2006, the fda made some attempt to investigate this, and there were pretty inconclusive, correct? yes or no? yes or no? spent i apologize spent okay, you're not going to answer that. let's go on. now, in april 2002, the fda began an inspection of the new england compounding center, correct, yes or no? >> yes. >> and that inspection continued to out the fall and winter of 2002 and 2003, correct? >> correct. >> eventually, you weren't there. this was not your -- it is not your job to defend what they did. but in 2002 the fda

investigators concluded after a lot of investigation that they were jurisdictional issues, is that correct, yes or no? >> that is correct. >> they then turned this investigation, there still wasn't fda involvement but for the most part they turn this investigator over to massachusetts. yes or no? >> yes. >> and so what happened at that point was that the fda did have some involvement but it was primarily massachusetts, is that right? >> that's correct. >> in the meantime, you know, i will say we are just trying to get answers here, because we do need to figure out how to prevent this. if we can't prevent this kind of the thing, then shame on us. because this is a company that had black specks floating in the bios but it had become a bit cleanliness that would even be, accepted anywhere in the world, and we're all sitting in bringing our has.

so we have to figure out how to give you the jurisdiction to do what you need to do. and we have to figure out how to give dr. smith and all the other state regulators like colorado the ability to work with you to do that. okay? >> agreed speed and his inconclusive answers are not helping us. now, the act, section 503 of the act has all of these requirements regarding the compounders, correct? >> correct. >> and what it says is a compounded drug is exempt from a variety of requirements of the federal food, drug, and cosmetic act relating to drugs to the fda preapproval if the drug is compounded for an individual patient based on the unsolicited receipt of a that a prescription, correct? >> correct spent and it says the drug is compounded by a licensed compounding pharmacy, correct?

>> correct spin to what has happened over all these years is his drug compounders have started these great big manufacturing facilities, and then they have the illusion that they are keeping these scripts for the individual patient's, but they're really not doing that, is that correct? >> that's correct spin and that is part of the problem, right? >> that is, and -- >> just told him to the other thing that has happened then, section 503(a) says, this goes to what mr. griffith was saying, is section 503(a) says that the fda can take jurisdiction if these compounding pharmacies are exporting more than 5% of the drugs to other states, correct? it says that, right? >> section 503(a), right. >> so what mr. griffith is thinking, why doesn't the fda just enforced that. but here's the problem, mr. griffith, and this is what commissioner hamburg is trying to say, it's the ninth circuit has thrown out all of the

section 503(a), and he says it doesn't even apply. and the fifth circuit has said section 5038 only applies to advertising and that's what the map is about. and so what dr. hamburg is trying to say is we can point fingers and we can be upset and everything am and we should be about what happened 10 years ago, and why this operation wasn't shut down, but what we we really need to think about is why we going to do going forward to make sure that the jurisdiction is clarified. and i would bet you if we would all sit down and talk about it we could agree in the same principles. we don't want the fda have a jurisdiction over the doctor and the little mom-and-pop pharmacy who stunned to make the appointment for the kid. that if it really is a big manufacturing operation, even though it's a compounding pharmacy, if the lot isn't clarified, if there's litigation and if there's a separation of

course decisions in the cases, we need to fix that and that's our job as congress. so i guess i would say, dr. hamburg, you know, i understand what you're saying that within the purview of the law as it is right now the fda needs to do everything it can to make sure it prevents this kind of activity. and furthermore we have a job. we have the job to all of these victims as congress cannot try to move the chairs around on the titanic. we have a job to clarify the law if there's not clarity in the law, and we can easily do it. so thank you, mr. chairman, and i yield back. >> i think we have a little time here. if you and i could have a colloquy here, and mr. griffith, you can participate in this colloquy. you're an attorney, ms. degette, and appreciate what your saying but i think the interpretation of what you did on the supreme court is not

wholly explained as you said. i'm asking staff, did the supreme court threw out the entire, was it -- i don't think they threw out, only that portion that dealt with market, and so for you to save faith throughout the whole thing so that the commissioner and the fda had no interpretations but that's not what i said. what i said -- >> illegal prime is that the sprint wanted a very small portion of that and left intact the idea that the company has manufacturing, still can be determined if they are small pharmaceutical or their manufacture, so i was a bit -- >> if you like a colloquy i will tell you what i said. spent what i said was be i think you appreciate what i said. >> the fifth circuit throughout the 5038 decision on advertising about the other of an tactic the ninth circuit throughout all of five of the. in supreme court took search on the fifth circuit case, on the

night circuit david owen talked about the advertising. so now it's really a big mess in and i agree, because of the 59th circuit and supreme court, body don't think this is what you're implying, that it creates such a position that the fda had their hands tied and they couldn't determine what is the manufacturing and what is a small pharmaceutical. spent icann, mr. chairman, you're misinterpreting what i said. what i said is that there's a lack of clarity in the law and what that means is that evildoers like this compounding pharmacy don't feel like they have to listen to the fda if they don't feel like they have to produce a document when you requested, and they see whenever there is anything that happens and that's the problem, is it ties the fda's hands when it tried to take enforcement actions against these folks, even if they wanted. >> you are welcome to step in here but i think i would -- >> point of order. whose time is a? >> right now it is hers but i

gave her the time and she yielded back at the astor it i could have a call ago with her which she agreed to. you are welcome to join. i think this is a legal interpretation which i think you're welcome to join in. >> mr. chairman, i wouldn't want to interrupt your discussion but we do have members on both sides of the aisle waiting for their opportunity for their round of questions. >> oh, sure. you were here at the time, give me 15 seconds spent it goes to your time spent you're right. i'm going to take 15 seconds and just say a pretty of the chairman is, i think what ms. degette a timeout between the fifth and ninth circuit court -- >> that's not what i'm saying spent but i'm the chairman and what i think is that there was still that the integrity of the law so that the fda could determine who was manufacturing and to they have jurisdiction. >> regular order, mr. chairman. >> i will recognize the gentlelady from tennessee. >> thank you, mr. chairman, and i've just a couple of questions. you all have stayed with us, and

we did appreciate this. a point of clarification. dr. hamburg, you mentioned earlier their 7500 advanced compounding pharmacists in 3000 still. >> that's information is given to us by the international association of compounding pharmacists. >> that's what i wanted to know if that was -- >> we don't know -- [talking over each other] so we don't know numbers from our own. >> okay. but you can sort it out for us. what you provide that the sourcing so we haven't? >> okay, certainly. >> thank you, you to i appreciate that. i want to go back to this issue that you all had, because you have the colorado complaint against necc in may 2011, is that correct? >> that is correct.

>> okay. and the complaint came into you well in advance of any of these contaminated lots being shipped. is that also correct? >> well, as i understand it was a request for information from us about whether they were registered as a manufacturer, a drug manufacturer, and necc is listed as a compound or. >> well, i think colorado notified the same fda compliance officers who had inspected necc in the past, is that correct? >> i believe -- >> and that these inspectors were out where of necc's past violations, isn't that correct? >> i believe that the e-mail from colorado was shared within the fda, because of the history with necc and -- >> okay, and then in that

e-mail, did they not say that necc once again shipping volumes of drugs without a prescription? >> what the indicated to us was that they were concerned that necc was operating in violation of colorado state board of pharmacy licensure and registration law, and they included attachment about the volume of product that was being shipped. >> but it was clear that it was a repeat violation, isn't that correct? >> what was clear was, they were not specific safety and quality concerns, but they were noting that there were not valid prescriptions for -- >> so let me ask you this. did fda do anything at all with the complaint? >> well, we suggested that the

follow-up with the massachusetts board of pharmacy spent you suggested it. you didn't require. did you even pick up the telephone and call the massachusetts board of pharmacy and say, we think we have a repeat offender? >> i understand communism what you're getting at there, but speedy yes or no, did anybody pick up the phone and call? >> e-mail was being used, but it was -- >> would you like -- [talking over each other] >> i believe you have them. >> we have all of those in total? windy to personally become unaware of the situation? and income at what what point in the process did you individually? not your staff, but you? >> when the first cluster of meningitis cases and the

possible link to necc was identified spent okay, dr. smith, let me come to you with my last minute. did the fda ever contact you? >> just so i can understand, teaming in the past are around this current outbreak? >> let's go back to the colorado complaint. if you ever contact you? did you ever, did you ever get a phone call or an e-mail from anybody that said, we think with a repeat offender after? >> i can't speak to the phone calls, but our review of the e-mails does not suggest that we got any information in. >> so they need at a repeat offender but they did not call you. with the boards of pharmacy, like with colorado, back to you, is there any direct contact there? you know, so many of our state board to do a great job of regulate in areas, contact and work with other state boards who

have like supervision in the state's? >> well, we did receive information from colorado about the action, but it wasn't until july of 2012. and we weren't, or i wasn't aware that until we discover that in the process of producing the documents for this committee. >> and let me ask you this. personnel actions in response to this, the necc, have you taken any actions of their? >> yes, executive director at the time has been let go from the department and the board council has been put on administrative leave, as was the division director for the area. >> and are you reviewing your processes and best practices? >> regarding personnel actions? yes. we reviewed the information age and that was presented for this committee. we have identified lapses in judgment which have resulted in these personnel actions. >> thank you. yield back.

>> the gentleman from california is recognized for five minutes. >> thank you, mr. chairman. i find this hearing amazing. because what we need to do is to work together to solve a problem. and make sure it will never happen again. instead, what i hear from my republican colleagues is they want to prosecute the director of the food and drug administration. did she know this? what actions did she take? it sounds like massachusetts has a lot to be apologetic about. isn't that a fair statement, dr. smith? >> that's right. >> the question is, did fda failed to do things they should have done? well, sounds like you could have done more. the fda is an institution could do more. the first time they wrote a letter wasn't 2006, saying that this thing seemed to become this company seem to be out of control. and then they didn't do anything after that. i have a feeling, dr. hamburg,

you are being picked on because you're part of the obama administration, and republicans have been picking on obama for four years. and usually their mantra goes jobs, destroying regulation, let industry police itself, we don't want government involved. now they are saying we want more government involvement. and i think they are right. with one appropriate government involvement to stop these things from happening. so, you would think that our obligation would be to figure out, he had the authority? i respect that chairman greatly but i've never understood him to be a great legal scholar. seems to be there's some ambiguity. if there's an ambiguity it's our job to clear it up. you think there's an ambiguity because the law we drafted in 1997 said one thing and the court came in and said something else. you don't know what you can add, what do you can't act. if want to make you act in the

future, other than just to beat you up do not i can, we got to make sure you have all of the authority appropriate to act. courts have thrown out part of that 1997 law. the courts themselves divided on whether section 503(a) continue to any legal force and the western states, 503(a) is not affected while in texas, louisiana and mississippi it is. and as a map put together by the compounding industry itself shows there's a very large gray area in between. so why are we looking for anybody to blame other than the company and making sure that the regulators have all the power that they need. that involves my colleagues, regulatory power to act. it also involves, i tell you, regulators to do your actions, to take actions to stop these at actors from doing what they want. and i wasn't in the room but i understand the chairman of the

oversight we said we're not going to be any legislation. i would rather we do it now before he leaves because he's so involved in this whole question, he should want to work with us to solve this problem but it doesn't sound like that's a difficult a problem. we need to say the fda has the authority to this, to do this and to do that. commissioner hamburg, if i ask you for a commitment to make your staff available to us this week, if we started a process speed is absolutely, tomorrow. we are so eager to work with you because we feel there are significant gaps in our authorities that limit and undermined our ability to do all that we want to do to protect the health and safety of the american people. you know, i think the fact that we have a situation like that map reveals, suggests that we don't have a comprehensive integrated legal framework for

action. and we think that we can work with you to identify critical areas, from registration to we know who's out there and what they are doing, to developing federal standards that should be adhered to to ensure safe and high quality products, to the early to do full inspection -- >> i don't want to get you off the hook completely. i think you need the law to be clarified, but if i were sitting in your shoes, that's a mixed metaphor, if i were sitting in your seat and i was ahead of the fda and i heard that colorado was concerned about this situation and heard other reports, i would have assumed i had jurisdiction to i would've assumed the jurisdiction. i would've acted on it. and i have to say to the state, you know, people think bipartisan comments and i think some of what's going on is a little partisan. when fda first sent a letter,

chairman say when you sent, fda, it was the fda under the bush administration. when the state of massachusetts had a week a consent agreement it was under governor romney's administration. you are now here under governor deval patrick and here under president obama. let's put partisanship aside. let's make sure you have the authority and the resources to do the job. we want you to do the job because we out to be mindful of the comments, that ms. lovelace make him and all the of the people who are waiting to see if they're going to die from this contaminated drug. we don't want excuses, but we don't want to leave this law ambiguous because you are always sued if you act. and if you act as a me at authority when you don't, you're usually call before committed to say how could you act as if he had authority when congress didn't give it to you. i think we ought to put our

partisanship aside, the election is over, figure out a clear law for the federal government to be able to act. because with all due respect, this is not a state issue if drugs are being shipped around the country. thank you, mr. chairman. >> and i'll be the first to recognize him to recommend as chairman of the fda. >> can we finish this hearing, please? >> might not want that job. spent all right, dr. burgess is recognized. >> thank you, mr. chairman. something those are important, i don't want to get lost in the translation. representative of blackburn asked about e-mails between the fda regional office and the massachusetts board of pharmacy. mr. chairman, may i suggest those e-mails are a critical part of our investigation and we must receive those, even if it's necessary to exercise subpoena authority. we need access to that. that's a critical part. >> we have tried. we've gotten e-mails from the fda.

the crux of this hearing is to get to the bottom of what happened to we can't get to the bottom if we don't have the information, so you're exactly right. the fda has got to cooperate and gives e-mails because we have zero. >> the fda has a lot of material, access to the opinion of your experts would be important to us in this investigation. so the intransigence, chairman of can reference in his opening statement is something that really must be overcome. now, i'm of the opinion that you all of the authority that you needed, and just it was a previous commissioner and it was a previous administration, so once again i would also ask that if there is a memo from the general counsel at fda to the then commissioner about you have the authority to do what you said you're going to do in this enforcement letter, i think the committee really should see that as well, and again, i think which exercise every power that we have in order to get there. and and it's important is, if

new legislation is indeed passed and passed hurriedly as has been recommended before the end of the year, and yet you're not going to act on that authority, then we will be right back your in the same soup with the same problem, someone in future. and maybe a different commissioner from the fda and they will say there was ambiguity. look, there's no ambiguity. you've got a criminal investigation going on against necc, is that not correct? >> there is a criminal investigation, yes. >> so where is the ambiguity, if you've got a criminal investigation? if you at all that guys seizing computers out of the compound, where is the ambiguity? >> first, let me say we are working to get you the e-mails that you want. we've been trying to develop documents and to continue as swiftly as we can in light of everything that's going on. you know, i know it's not the

answer that you want to hear, but if you think that there is clearly ambiguity, and a lack of speed a criminal investigation, guys in fda jackets seize the computers. did it on tv so everybody could see. it doesn't look ambiguous. [talking over each other] >> you know, i want to do everything to work with you and get you the information that you need, i think we also do need to look forward and look at where are the gaps in authorities. i cannot speak to what was going on in the fda during that period because it has been noted, i wasn't there. as i had just ended they were very intense discussions and conflicts about what were our authorities, ongoing litigation, what basis would we use for different regulatory actions

that might be taken -- >> so help us here. if we're going to craft legislation rapidly before the end of the year, as been suggested several times on the other side of the die is, how do we keep from making the same mistake again? look, he had the authority to conduct an investigation as to whether or not you have jurisdiction to conduct an investigation? that's what i've been hearing all day. >> we have authorities have been consistently contested can have resulted in split court decisions and a patchwork of regulatory legal oversight, and unicode that is part of what we can and should address together. >> look, people are dead. doctors administered medicaid that they thought were safe and the patients have suffered. they've got to live with us consequences to the case were heard about today with the doctors didn't have a clue as to

what was really the culprit, and that gentleman's illness. there's a lot of stuff here that it is the problem with the existing statute it needs to be corrected, but you all was the ability to look at those internal documents and be able -- [talking over each other] >> it's been said time and time again we got to do this before the end of the you. give us the stuff. mr. chairman, i'm going to ask that we subpoena the stuff we need and do that forthwith. yes, i know it's holiday season and nobody wants to be working on this stuff, but we've got to do it. and if we rapidly produce legislation so that we can just say we're done something before the end of the year, so we can all feel good about ourselves, again, we're going to to be back here in the same mess, three years, for you can fill in the blank. if all you need is to say i'm a company pharmacist, what's to stop pfizer to more from saying i'm a compounding pharmacist. all this stuff goes out the door

and you can't stop it, you can't touch me because the fifth circuit for the ninth circuit for someone said you can't touch me. that's nonsense. no one believes that that's the way it should be. and surely you don't either. >> i do not, and that's what i really do feel that this is an extraordinary opportunity for us to fix some of these problems that have really been present for, now at least 15 years, and has tragically resulted in incidents involving death, bad decisions, injuries and harm from drugs that the patients got would help them, not harm them. and so i think we can strengthen -- >> look, you always the information you have. good enough commute experts under your control it if this was something has been discussed internally, and there's been a conflict internally, let us be privy to that information so that when we try to craft a

legislative fence, it's not an imperfect product. we have all the authority me today to shut this place down, lock them up and send them away for however long that anyone would care to think, for whatever reason it didn't happen in 2002, 2004 -- >> the gentleman's time has expired. spent i yield back. >> before i recognize yesterday now, dr. hamburg, with thousands and thousands into some doctors missed agency, so the fact that you have none, she has less resources than you do get have complied and depends on information so i urge you and your staff to comply. >> we will get that. >> mr. dingell mr. dingell is recognized for five minutes. >> thank you. dr. smith and commissioner, it is possible for the two of you to execute memorandums of understanding, is it not? >> yes. >> is there any reason why you could not or would not begin to devote your attention to

achieving such a memorandums of understanding so you could define where the authorities of food and drug live, and the authorities of the agency in the state of massachusetts like? are you willing to undertake that, ladies? >> i certainly think that there are multiple opportunities for us to do better in terms of communicate she and and that sort of thing. .. >> and if we cannot complete our business by year end because of the senate or other things, that

we are able, therefore -- because of your lakes -- of commencing the process of continuing along on a parallel track. are you willing to do that? >> we are certainly willing to do that, and we are pulling together all of the 50 states in order to -- >> i don't want to sort out the difficulties -- >> and the activities. [inaudible conversations] >> i wont to look at how we resolve the problem. >> i just have to underscore that it still won't address -- >> doctor, the clock runs, it is most uncharitable. i will look to hear you give me an answer on what you can do to get a memorandum of understanding done between your two agencies and/or other agencies. now, it is possible to define a compounder as a person who makes certain amounts, and to define a manufacturer as a person who makes certain amounts of pharmaceuticals, is it not? yes or no in.

>> you could decide to put that in legislation. currently, that does not exist in the legislation -- >> so you're telling me, you're telling me you don't have the authority to do that? you do or you don't have authority? >> in and of itself is not dispositive. it could be put into legislation as a statutory, um, factor in our -- >> compounding center and other like-hearted rascals have engaged in the practice of figuring themselves a fine loophole in which through lobbying and other efforts they have been able to assure that they're able to engage in practices that impose substantial dangers on the american people. now, having said that, i'd like to have you tell me one more thing, if you please, doctor. you have one of the required

treatments for this particular fungicideal meningitis that takes place is to have availability of a substance called oral vorokazol which is a therapy used in treating spinal meningitis. there is a great concern on the part of the hospital in my district, st. joseph mercy at ann arbor, and they are troubled that there's going to be a shortage of this particular pharmaceutical available to them to provide the necessary treatments for their patients who have been hurt by this particular, the particular injectable that we're talking about today. what is there that we can do to assure that there is an adequate, current and future supply chain for oral voroka,az.

>> from the very beginning, we've been looking at the possibility of shortages -- >> what are we going to do about that? >> they did not feel it was in shortage, i have not heard anything further. i will get back to you if there are concerns, but i do not believe this is at risk for shortage at the time. >> this is a matter of urgent concern, and i would suspect if my people at st. joe's are concerned, that you will have hospitals and practitioners elsewhere in the country who will have the same concern. >> yeah, we have been examining that. >> mr. chairman, i thank you for your courtesy. >> gentleman from virginia is recognized for five minutes, mr. griffin. >> mr. chairman, this is probably a first for me in the time that i've served on this committee, but i agree with

mr. waxman when he said he would have made the assumption particularly in those areas that are gray that you had the authority, so i just point that out to you. now, maybe it's because i was a criminal defense attorney in my prior life that threats that somebody might sue me just wouldn't stop me from doing my josh and -- job. that's why we want to see the e-mails and the memorandums. i thought ms. degette did a nice summation, and i wish you had been as clear in your answers. but having been a criminal defense attorney and having all day heard you say you needed clarification of authority, i have to ask the question; what is your legal basis for the fda going in and doing a criminal investigation in this case? >> well, of course, that is being done with the department of justice. um, but the food, drug and

cosmetic act, obviously, is the basis for so much of our regulatory actions. but the problem here is that a component of 503a has been questioned in the courts, and it is -- it applies in some areas, and it doesn't apply in other areas. and we have around compounding pharmacies we have guy dance that we put out that would be applying in this some areas, but that doesn't have the force of law. so it is a challenging arena -- >> well, and here's the problem. i fear that in your comments today you may have made the argument for the defense that tear going to escape -- that they're going to escape criminal sanctions because you have said that the law is ambiguous and that you don't have the authority to go forward. and i think that's a mistake. because, look, you know, i think

there -- as i said before, a manufacturer, particularly when we have 1415 patients in my area alone, i think their a manufacturer. and just because they call themselves a compounder doesn't make it so. i could call myself the duke of earl and claim diplomatic immunity. in a trier of fact would have found they weren't a compounder a long time ago which is why as you move forward you didn't answer the question earlier, so i'm assuming that you don't routinely contact medical professionals and ask them where they're getting their drugs from so that you couldn't identify, i think that's what you should have been doing, but hindsight's 20/20, as we all know. i think you ought to be looking at doing something like that in the future so you can protect the american 34reubg. like mr. waxman said, you should have assumed you had the authority when you had a bad actor. dr. smith, i would hope you all would look. i believe they may have

undermined their criminal case today, so since they said it was the state's responsibility, perhaps there's a state law that you could look into and ask your attorney generals to see if there's any criminal prosecution that could be brought under state law. because if the fda opportunity have the tort -- fda doesn't have the opportunity to deal with them -- [inaudible] that being said, i would now yield my time to the gentlewoman, congresswoman blackburn. >> thank you, i appreciate that. and, dr. hamburg, i want to go back to this issue that pertain to the e-mails with necc. the first violation came up in '02. and please understand that it was unclear in your answer to me about the e-mails. you seemed to indicate you thought we had your e-mails. we do not. so let me be very clear. we want to see this entire file going back to '02.

we want all of those e-mails, and we want the conversation that took place via e-mail with the massachusetts board of pharmacy. i have 81 tennesseans and 13 deaths. we are very concerned about this. we're concerned about everyone that has been adversely impacted. our sympathies and thoughts are with them, and we are incredibly concerned about the ineffectiveness of the bureaucracy. and it doesn't matter which administration. it is the lack of attention by this agency to a situation that has gotten out of hand. so just to be certain that you understand what we're asking, all of the e-mails -- we are not in possession of this, and we have asked for this. so we do ask that you comply quickly so that we can see the full extent to your participation and the manner in

which you all communicated with, responded both on an intraagency and then also with the massachusetts board of pharmacy. and with that i will yield back the balance of the time. >> gentle lady's time is -- gives up the time. and the gentleman from massachusetts recognized for five minutes. >> thank you, mr. chairman, very much. dr. hamburg, isn't it true that the legal definition of drug manufacturer in section 510 of the food, drug and cosmetics act exempts pharmacies? >> um, you know, i am not a lawyer, but my understanding is, yes. >> yeah. so that -- >> under certain circumstances. >> that creates a problem right up front from a legal perspective. >> yeah. >> that clear statement that exempts pharmacies from fda jurisdiction.

and when it comes to drug manufacturers, huh? that in the actual definition itself, it kind of talks about what would be a equivalent of merck, bayer or pfizer and then it specifically says pharmacies are not covered in that definition. so that's just loaded with potential for lawsuits, you know? for questions that can be, um, raised about your authority. and do you need that clarified so that you absolutely have the ability to regulate compounding pharmacies in a way that protects the public health and safety in. >> i think that 510 exempts from registration, not any kind of jurisdiction. but i think the problem is that i'm not saying we have no authority, i'm saying that our

authority over drug manufacturers is very different, and it requires, um, a set of clear actions on the part of the manufacturers and the part of fda. in this area it is simply much more hurricane key, and it is -- murky, and it is contested in the courts, and we have a split court decision. we have different states, different industries that operate across state boundaries. we don't have the kind of authorities that we need, and can we don't have the kind of clarity of the legislation that we need as well. you know, i am deeply troubled by what has happened in this case and with necc, and if there were actions that could have been taken at an earlier time to have prevented it, i would wish that that were so. but, you know, what i'm speaking

to now is we have this opportunity, it's a clarion call to action, i think. and if we don't want to see that kind of event repeated -- and it's not an event that has occurred in isolation, you know? there have been events in so many members' districts in the past over a period of many years that i think we have an obligation to work together to create new legislation that defines this in a way that is clear and understood and that gives fda new authorities, mr. griffith mentioned, you know, why aren't you writing to compounders? people telling why aren't you writing to patients telling them you might be getting drugs from compounders, well, we don't even know this universe of compounders and what they're making. so we clearly need additional authorities in order to achieve some of the goals that we've been talking about. >> doctor, that's why i listed

the individual component parts of my legislation, just so it could be clear, that you would welcome that authority. and then we could insure that you can be the true cop on the beat. but i do believe that it is troublesome that in the legal definition of drug manufacturer, the legal definition in the fda statute, it actually exempts pharmacies in that definition. >> [inaudible] >> so the whole area is just rife with ambiguity. and in that atmosphere of ambiguity, we've wound up with a mess on our hands. and we just have to make sure that that, um, never happens again. mr. chairman, i thank you so much. >> thank you. and i would say to the panel we've completed our questions here, and as the chairman i have usually the authority to say the last few words. and in defense of mr. markey who made the case in his words as murky, i go back to what

mr. waxman said that if he was chairman of the fda, he would not have been cautious, he would have been siding on safety and gone through and exercised regardless of what the situation was. i agree with him, and that's why i think he probably should considering with -- consider being the commission chairman. if pfizer or merck or any large pharmaceutical company suddenly called themselves a compounding company, you're im34r50euing you wouldn't -- implying you wouldn't have jurisdiction over them. we know that's not true. lo and behold, that was just a front so that they could defend themselves when actually they were committing fraud and criminal activity. and lastly, i would just conclude, mr. griffith, dr. burgess both mentioned the fda appears to have the legal authority to walk in and take computers with their jackets, we've seen on television. and certainly if you had the ability to go in and prosecute

and take the computers from necc, then surely you had the jurisdiction to shut them down, because you had the jurisdiction to go in and take their equipment. and certainly i think many of us in this committee are disappointed that you're not providing the e-mails and information we need so we can get to the bottom of this, and that was the intention of this whole hearing is to see what really happened. so with that, the subcommittee's adjourned. [inaudible conversations] [inaudible conversations]

>> here on c-span2 this morning we are going to take you live to a discussion with former federal reserve chairman alan greenspan and paul volcker kicking off a summit on the fiscal cliff, that impending package of budget cuts and tax increases starting in january unless congress reaches a deal. president obama's chief economic adviser gene sperling will also take part in this discussion which should get underway shortly. the president begins discussions this morning at the white house with congressional leaders over the fiscal cliff set to begin sometime this morning, and we will keep you posted on it. this is live coverage here on c-span2.

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♪ [inaudible conversations] >> good morning, ladies and gentlemen, thank you so much for joining us this morning at the knight conference center here at the newseum. i'm amy washman with the peterson foundation. throughout the program today, we're going to be polling the audience. we'd like to get your opinion and get you involved in the discussion on stage. so i just briefly wanted to make sure that everyone who has a smartphone has scanned their qr code and has pulled up the polling site on their phone, or be you checked out an ipod touch up front when you registered this morning, that you click on the pgpf poll icon. for those of you watching our live stream, you can also participate in the audience voting. you can text the keyword to

22333. the keyword you'll see are the bolded words next to your answer options, so for this test question we're going to be asking you the best part of thanksgiving dinner is; turkey, gravy, cranberries or family. you can text to 22333 or tweet @poll and enter your keyword. we'll register your votes and get answers instantaneously. on your smart device, you scan your qr code, you'll be taken straight to pollev.com/ pollev.com/pgpfoundation, and your options will be presented so we can all vote together. i'm going to go with the thanksgiving sentimental option of gravy is my favorite part of thanksgiving. so we'll click on that, and then your results will be registered automatically. and at the end of each panel, we'll be showing the results.

thank you so much, enjoy the program. >> ladies and gentlemen, please welcome the chairman to have peter g. peterson foundation,. pete peterson. >> morning. [applause] we meet at a pivotal moment of u.s. economic history, and quite frankly, my personal history. for over a quarter of a century, i've been railing relentlessly and boring others and sometimes even myself over our long-term unsustainable debt. today, as a matter of fact, i didn't want realize how boring -- i didn't realize how boring i'd become until ted sorenson introduced me one day in the following way: he said

peterson and i were on a trip to the mideast when two terrorists stood up on a plane and said we're going to assassinate these two former public officials on a nonpartisan basis, but we're going to give them their last wish. so they say, all right, peterson, what's your last wish? peterson says, i have one last speech i want to give to those on the plane about the relationship between the long-term debt and the american dream. [laughter] all right, sorenson, you've heard peterson, what's your last wish, and sorenson said, i've heard peterson make that speech, and my last wish is to be shot first. [laughter] today many are raising their voices calling for a solution to our challenges, fiscal challenges, beginning with fiscal cliff which is hard to believe, but it's only 45 days away. we confront at least three critical challenges.

first, there's the tension between short-term economic growth and long-term fiscal sustainability. we must somehow accelerate a slow recovery and create more jobs. but we also must acknowledge the realities of our unsustainable, long-term fiscal conditions. i think it was herb stein who first reminded us -- speaking of unsustainable -- that if something's unsustainable, it tends to stop. and he said to me one day if you don't like that one, pete, i suggest the following: if your horse is dying, i suggest you dismount. so the decision before us is whether we plan our dismount, or the horse does it for us. how do we address our long-term challenges without hurting our short-term economic growth? or can we both address our long-term challenges and at the same time stimulate the

short-term economy? a second of three challenges, the fiscal cliff is a major test of our political system. it's clear that any long-term plan will need support from both parties and most particularly the president. to become law. so how will we build the political will for bipartisanship now where none has existed before? any solution's going to require compromise and sacrifice, and those have become two of the dirty words in the washington political language. but they are both essential in any solution. in recent days we've heard some encouraging words from both sides. what do we do to lubricate this indispensable political process? third, the cliff is a test of market confidence. going over the cliff could lead

to market fears and economic contraction. however, even just another disappointing kicking of the can could drive a major negative reaction in the market and, therefore, our economy. fueled by seeds of doubt about america's fiscal stability and our political resolve. today our leaders in washington are faced with the political imperative and an economic imperative to act. as economic, fiscal, market and political pressures all mount, we'll have to answer a critical question; are we going to shape these forces, or are they going to shape us? last week the voters delivered a mandate. not a mandate for one party or another, but a mandate to finally get together and get something done. i believe the sobering fiscal and economic realities combined with the mandate of the voters

can produce some forward momentum, and i hope these discussions today can lead us in that direction. i cannot imagine two better speakers to help us begin to sort through these issues. they need no introduction, and therefore, i'm not going to give them one. i just hope, gentlemen, that our friendship is not impaired by my not introducing you. i'm referring, of course, to two former chairmen of the u.s. federal reserve, and i give you two very distinguished economists, statesmen and friends, alan greenspan and paul volcker. gentlemen? [applause] [inaudible conversations]

>> you gentlemen have witnessed some major economic events in your long careers. what would you think be the impact on the economy if we go over the cliff? what if policymakers, on the other hand, kick the can town the road for -- kick the can down the road for several months but fail to address the current gap between revenues and spending policies and fail to stabilize long-term debt? paul, how would you answer that? >> well, i think maybe a little too much has made this over the

cliff business. we're not going to soft this long-rake -- solve this hong-range problem, in my view, in the next seven weeks, whatever we have. it's going to take some time. we have to deal with the short-run problem. we have this thing sitting here with a big sequester and a big tax increase. so that has to be dealt with in terms of the immediate economy. and i think that can be done. but i don't -- that will take some action on taxes and on spending, but it won't be the action that cures the longer-term problem. that's going to take some time, and i wouldn't call that kicking down the road. it's going to take some time to redesign the tax system which needs a redesign and to in a convincing way put restraints on spending that's going to deal with that yawning deficit over years ahead. >> and you, dr. greenspan? >> well, i agree with paul. i think that there are really

two separate issues here, but we have to recognize that how we solve the short-term issue is going to affect how we address the longer term. and my main concern is that we don't recognize how difficult the problem is going to be. we have, essentially, picked all of the low-hanging fruit, so to speak, of the ifs us call system. we have stretched ourselves beyond comprehension, and the basic problem we'll get into later is the fundamental issue of spending. we have had a significant rise in so-called government benefits for persons. it's going up at a tremendous rate, and the great irony of this is that it's going up

even -- went up even faster during the prudent years of republican administrations more so than the spendthrift depp kuralts. this is a bipartisan -- democrats. this is a bipartisan problem. and i think we've got to really stop it, and we have to stop it clearly, because i think the real difficulty here is it is for reasons i can get to a little later dollar for dollar eroding the savings of the society, and savings is a fundamental input for capital investment and capital investment is the primary ingredient for productivity. our growth rate has slowed down, and what we are looking at is unless and until we solve this particular short-term problem to get on to the longer-term problem, we're going to find the markets are going to respond very negatively. and our main, fundamental

concern is we have to realize where we're going cannot continue indefinitely because it's eating into the productivity and the growth rate of the economy. and if we don't have that, how do we finance our benefit programs? you could write entitlements as long as you want in the congress, but where are the physical resources going to come from to meet them? so i think there's a very critical issue here. kicking it down the road is not going to help, because one thing we don't look at is the markets may respond negatively before we even notice it, and that's going to cause a huge problem. >> well, tell me, i think in the case of europe you can take any of the countries you wish, the action taken happened very suddenly, it seemed to me, and

quite surprisingly. do you have any sense of how much time do you think we, the market's going to give us before they react in a strong way? >> the one thing about markets is they don't give you any advance notice. if, in fact, they could give you advance notice, they would be -- the problems would be arbitraged away. so by definition a crisis coming from markets doesn't give you advance notice, and we've got to recognize that fact and not catch ourselves and say, well, we're going to deal with this thing when the crisis arises. that's a little late in the game. >> paul, what do you say about that? >> well, i agree. you're not going to know when this happens. it's impossible. it depends upon too many different things. but it isn't going to go along

forever, and ask you're going to have a crisis at some point. now, how do you deal with that? you can't cure it overnight, that's for sure. spending is the crux of the problem. we've got a lot of that built in. it's going to take years to get back relation to gdp or however you want to mush it to something -- to measure it to something that's sustainable. how do you create the program now that's convincing that, in fact, you talking about 2013 or 2014 and you've got a convincing program that's going to get you the right place in 2020? and it's going to take that long to get back to a balanced budget. if you want to talk about actual balanced budgets. and how do you -- we won't have the crisis, or we minimize the chance of a crisis if people are convinced you're on the path. now, how do you get people

convinced that you're on the path to deal with it over a period of years? i think that's the political problem that exists at the moment. assuming you can get some consensus, how do you convince the american public or not just the american public, but the world that the united states is on a sustainable path? >> i think one to have questions i get asked most often when i express the concerns you two gentlemen are concerning is where else are they going to put their money? >> pardon me? >> the question i get asked by people often when i express these concerns is where else are the lenders going to put the money? >> the united states versus -- >> yeah, the united states versus other countries. no other countries people are going to put a lot of money in, so what are you worried about? >> i think that's, to some extent, been true currently. but we can't count on that being the case forever. we've got big people looming up.

china's going to be different in a few years. japan may have some recovery. europe, we hope, gets out of it problems. we can't sit here and say we're going to deal with this problem because everybody else is worse off than we are. i mean, that's kind of a crazy approach, and it's not consistent with the kind of leadership the united states needs not just in economic affairs, but in political affairs. we can't simply accept that argument that other people are worse off than we are. >> well, we've had the great blessing of a reserve currency, haven't we? >> the great blessing, you say. >> let's talk about how permanent that arrangement is. >> i -- it's a two-edged sword. it's very convenient. it's enabled us to finance deaf sets very easy -- deficits very easily at low interest rates s and we've got to finance the balance of payments. i was struck the other day, karl marx is not a very popular

figure anymore, but once in a while he said things that were sensible. he said, you give bankers enough rope, they'll hang themselves. you give countries enough rope, they'll hang themselves too. let's look at the southern tier of europe. they can borrow and borrow very easily until it stopped. and or borrowing indefinitely very easily is a good recipe for a first or class crisis. >> yeah, you know, i think you've got to -- this issue of where they're going to put their money, there are two fundamental problems. one is that the assets can just e evaporate. wealth is essentially two factors. it's income, but more importantly it's the forward rate of discount to those future expected incomes. which gives you the value of how many assets you really have to invest. and there's a very simple solution.

if you can't -- if you're running into problems, what'll happen is that discount factors will rise, indeed, as they are, and values collapse. but even having said that, there's a whole structure of other things people can do. and they can take their money and put it in goods. or as a currency, there is gold. and so this notion that they can't put it any place, i think, is just nonsense. people, investors can -- and they will do it in the wrong places for the wrong reasons, but whatever they may do, it's not good. >> paul, do you want to add anything to that, or -- >> no. >> okay. you raised, to me, an interesting, pressing question, paul, which is how do we give credibility that we're actually

this time going to do something when the problems that we're describing are very complex whether it's reforming the tax system or reforming entitlements or whatever? now, do you have any ideas on what -- >> oh, if i could answer that, i would tell you. i wouldn't keep it a big secret. that inherently is a difficult problem when you're talking about something that has to take place over a series of years. but one, you do one of two things at least. you say you have a target which is accepted on generally by the president, by the congress. one way of expressing it, i guess the way simpson-bowles did, was how -- what percent of the gdp will you am at -- will you aim at for expenditures and use as a target for your spending programs, whatever the spending programs are, the entitlement, defense, civilian. and keep that sense of

commitment as best you can. but it's still just a -- [laughter] it's hard to put into law. you can put it in law, but what's the law mean? you can't predict what's happened several years down the road. but do we have a consensus that we want to get spending which i guess has been running as high as 25% of gdp, 4 or close to it now -- 24 or close to it now. historically, it was 20. can we get it back to 20 the? very tough. is 21% a reasonable goal? 22% a reasonable goal? that's one way of going about it. another way just setting a knew herral target -- numerical target for spending and taxation, but in east -- but in either case it's -- you can change the tax law, and that's in place. you can't change, i don't think you can have a law that controls spending for ten years. >> yeah. you know, i think there's a very interesting issue in policy

basis. it is extremely difficult to rescind entitlements to which people think they are legally spate -- into it willed, and that if you're doing that, you're aggregating contract of some form. and then, of course, there are all sorts of constituencies under every entitlement program which support it. the issue, however, is taxes can always go up and down. there isn't the same political pressures there. as far as i'm concerned, i think the issue here is fundamentally spending. if we have to pay a high price in raising taxes temporarily in order to get spending down, i think that's a good deal. i mean, i don't think that you can continue continuously keep this deficit open. and i grant you, if you raise taxes, we're going to turn the

economy down. but if the cost of getting out from under this problem is a moderate recession, i would say it is cheap price, very low price. i think we're somehow thinking we're going to get through this thing without pain. that's sort of nonsense. this is a very dangerous situation. and it's not a question of whether we pay a large, painful price or a small, painful price. the question is which is the least worst of our alternatives. as far as i'm concerned, if we have to pay a large price in increasing taxes in order to get this extraordinary, unstoppable rise in spending, if we need to do that, i think we have to do that and then recognize that it's politically far easier to lower taxes than it is to lower spending. >> paul? >> let me take back a little

what i said before. there are some areas that you can work on in spending kind of immediately that are built in. we can do manager about social security. social security, i think, is a less a part of the entitlement problem, but it's a problem. and i think it is a soluble problem by means that have been much discussed. and once you put ha -- you put that in place, as alan greenspan did 20 years ago or something, it's going to last for years. and theoretically, you could do something about medicare too. i don't understand enough about medicare to give particular suggestions, but the entitlement programs you can redesign. you can't do it in six months. but you can do it. but defense spending, civilian spending dependent upon year-by-year appropriations, a little more difficult to put it in place and say there it is for ten years. >> you know, as i've listened to

various schools of thought, it seems to me there are at least three. one is our short-term problem is so primary that we have to get around to stimulating the economy short term and let the long term take care of itself later. there are those who, i think, alan, are what i heard you say, that getting the long-term situation under control is so central that you're willing to take steps that may actually retard the economy short term. then there's another school of thought that says you can do both in the following way: you can lay out a plan for the long term that will create confidence that you're going to do something, but it doesn't get put into effect until the economy has recovered. what school of thought do yo --

do each of you fall here, or maybe there's a fourth? >> first of all, i don't think the markets would find the issue of we'll solve the long-term problem, we promised to do that, we'll pass legislation and let us now do the short term. the markets are going to start to laugh at some point, and the form of the laughter is markets run into real serious problems. you know, i think that we've got to stop the recognition of -- this is a problem. we're in a democratic society. in a democratic society, especially one based on individualism, we all have our own ideas. but compromise is not an abrogation of principle, it is basically a recognition that we choose in order to maintain the fundamental structure of our

society, to compromise. and we used to do that all the time. the stress between the various parties is actually no greater now than it's ever been. you go back and look at the distribution of the caucuses within the house and the senate, they all look precisely like they did with the conservatives and then the liberals 50, 900 years ago -- 100 years ago. the problem is unlike what we used to do 20 years ago, and paul would remember this far better than i, people used to speak to each other across the aisle and talk to each other and come to an agreement, and it was never really a big, difficult problem. ..

leads to, but what do you think of that point of view? >> i don't disagree with it. no, i don't. >> and you, paul? >> we make artificial crises for ourselves, like this current business of over the cliff. it's a political crisis, not economic crisis. >> the real interesting issued is why do we have a debt ceiling?

basically would have and appropriations process which creates the spending level. we have a tax code, and if you're even remotely a joint in arithmetic you can figure out what the president and the congress has already passed before the deficit and a debt ceiling, the debt ought to be. now you come in with a new, it's like suspenders and a belt. it goes back to the liberty, world war i. >> world war i, that's correct. >> it was, originally congress had to pass legislation for every issuance of debt, so they speeded up the process by putting in a debt ceiling and substituting it. and we've still got a. i just don't get it, frankly. >> well, if you're a congressm

congressman, you like to have a little trigger so you can talk about it every once and a while. not a very good idea. go back to pete's earlier question. we don't have to tighten right at the moment. it's going to take some time to get the consensus that we all want on the spending and on the taxes. that it's not going to be january 2013. it's going to be 2014, 2015 before that gets put in place. it's not easy to change this tax thing when you say let's get rid of some deductions and loopholes and so forth. all those loopholes and deductions are there because people want them. we ought to get rid of a lot of them but that's the big debate, which ones you get rid of and how do you get rid of. and to think you're going to

resolve that in two weeks or six weeks or nine weeks is foolish. >> you mentioned taxes, and one of the biggest debates, obviously, going on is what you do about taxes on those above 250,000. if one of my roles is to try to present kind of various sides of the debate, there is a school of thought that it's the over 250,000 better so-called job creators, and if you increased taxes on those above 250,000, you'll have a significant effect on the economy. this is part of a larger question of how serious is the effects on the economy by raising taxes. but let's start with a narrow question. suppose that taxes were increased by those above 250,000 but not the rest, what would you

guess the effects would be of that? >> zero. >> that's a nice clear number. >> i don't quite agree with paul. leaving aside the issue of the sort of political notions of who should get taxed and what, there's no question that the vast proportion of commercial savings which is a big part of gross domestic savings in the economy are large in the upper income groups, to the extent that you increase taxes on them you are essentially reducing savings. and the data are very clear on this. and savings are a necessary condition for capital investment and productivity growth, as i mentioned before. and so, leaving aside the argument, which i think is a

debatable argument as to what extent the issue affects the economy, directly through the so-called job creation, i don't look at it as job creation issue. i mean, that's sort of a secondary, tertiary effect. i look at it as on the problem that there's one remarkable stability in the economy in the last 30, 40 years, and that is the sum of government social benefits to persons as one series, and the gross domestic savings and the economy on the other. if you add them together, they are coming, the range between 26 and 28% of the gdp going back

into the mid 1960s. and what you see is almost dollar for dollar, that as the increases and benefits rises, savings go down. it is fundamentally affects -- i think if you look, if you reject the issue of savings continuing as a stable proportion of gdp which it had been from, say, 1983 back, and you look at the actual decline that's going on in savings, you can attribute it to you directly to the spending rise. and i think that's the reason got to stop this extraordinary, uncontrollable rise in spending that's affecting our long-term growth. and the irony is, without the

long-term growth, as i said before, you don't have the resources to meet the benefits that are being created by the congress, which are paper benefits. they don't create anything. they just get it right to who gets distributed what is produced. but if you're not producing it, what's the good? >> well, see if i understand your answers. train would say it has zero effect, and i'm sure you will want to elaborate. >> let me elaborate spent i heard you, alan, saying you don't like it, if it's part of the total package. but gets at the spending problems. you think it's a price worth paying. >> we're talking about raising taxes? absolutely. >> and you, paul? >> i don't think changing that particular tax rate at this particular time of a big effect on the economy. but overall there's a good

argument for keeping tax rates as low as possible. and lower than that level that -- that takes a lot of consideration of the total tax system, and to organize and what taxes you want to rely upon, you get into corporate taxes as personal taxes, what do you want to do but deductions and all the rest. and i would aim alternately for a balanced budget. and you want to aim for lower level of spin you can get by with. it's a big deal door trim than we have now. and that is a fundamental approach, no question about it. then we got to devise a tax system that is going to produce whatever it takes, 20%, 21%, 22% of the gdp and to the in the most efficient way we can. i think the present tax system is pretty well broken. i'm not sure you can rely so much on income taxes as we have in the past.

we ought to begin looking at more consumption oriented taxes. >> i agree with this. in fact, i think it's a terribly important point, because remember when taxation is for. it's to fund the spending which we appropriate. spending comes first, and then you decide how much you need to raise in taxes. this notion that we can somehow manage the fact that taxes and spending don't go together has been a very. we've tried it a few years, and you've been arguing against the deficit. the reason, basically, is, you may recall, general be those in the united states -- general ethos in united states, 1970s maybe or even a little earlier than that was the fact that the federal budget ought to have taxes equal to spending. i remember president eisenhower

apologized to the american people for a very small deficit. we got very sophisticate with our micro economic models as to how you can manipulate the economy by moving fiscal policy. well, there's a terrible bias in the way the system, which has led us to this fiscal cliff which would've occurred even without the debt ceiling. you've been raving about this, i regret to say, against you know, interest whatsoever, but we come down to the point where are very sophisticated economic policies have led us to this point. and i think, paul put it, i would say is exactly right. in many ways, decide what we need to do for spending, and then you raise whatever is required to fund that. and stop with this business of we can do it 3% deficit because

it doesn't change the level of debt to gdp. that is factually correct, but it is irrelevant because if you try to do that you won't make that either. that's what's happening. >> let me shift a little bit to europe, try to help me understand this situation. first, what lessons does the european experience teach us? and second, there are few indications that maybe europe is coming up with some possible answers to their problems. what happens -- a lot of the money has been flowing out of the euro i think because of deep concern about the european situation. but one of the challenges that europeans might be getting their act together? and if they did, what effect would that have on us?

>> i don't think they are getting their act together. i mean, kicking the can down the road. what they are fundamentally doing, financing a very large part of the fiscal deficits of the 17 countries of the eurozone. with central bank money. you can look at the size of the european central bank balance sheet and for example, unless you it's gone up more than a trillion euros funding essentially the deficits of the individual countries by either lending directly or essentially buying the bonds of the particular countries. but there is no evidence that they are converging. that is, the greek situation is classic. i mean, i can't imagine how the level of debt increases ever

going to get paid off. and the problem, ultimately, is that the guarantors in northern europe, extraordinary behavior of so many of them, is running at the political problems in the north. i just don't think this thing will come together. as i wrote in an article over a year ago, i did an article in the financial times, this is a cultural problem. and i think that the euro is going to very great difficulty in holding together. >> paul, do you want to add anything? >> on the euro i hope it holds together but it's a very difficult road to follow, finding with the levels of unemployment levels they have. but i think the big question here is, referred to early. he have a situation where there was